Momo Suffers Big Losses

Please click here for a chart of S&P 500 ETF (SPY) which represents the benchmark stock market index S&P 500 (SPX).

Note the following:

• Only five days ago, the momo crowd was aggressively buying stocks with momo gurus claiming that the bottom was in. This morning, the momo crowd is realizing big losses with hunt and destroy algorithms taking out the momo crowd’s stops.
  • For hunt and destroy algorithms, it is rinse and repeat to great profitability as the momo crowd and those who follow traditional technical analysis continue to repeat the orthodoxy of putting their stops at obvious places.
  • One of the innovations of The Arora Report has been to fine-tune the art and science of setting stops so that they have the least probability of being taken out.  We are receiving a large number of emails from new members who were frustrated before joining The Arora Report – their stops always being taken out or not setting the stops and losing big. To learn more about stops, read Trade Management Guidelines.  Those who want to develop expertise, attend the Bullet Proof seminar.
  • We had forewarned you in the prior Capsules that hunt and destroy algorithms were getting ready to take out stops.  That call is proving spot on this morning.
• We had also previously warned you that algos would start selling if the red line shown on the chart was breached.  That call has also proven spot on.
• The chart shows that the red line has been breached.
• The chart shows that the market is now entering the support zone.
• The chart shows that RSI is now on a sell signal.
• As we previously shared with you today is quadruple witching.  In quadruple witching, stock index futures, futures options, stock options, and single stock futures expire. Quadruple witching may increase volatility.
• To counterbalance the selling, the quad witching appears to be on the upside.  This is the reason, signals were given earlier this morning to take partial profits on the inverse ETF SQQQ position and on QQQ short position initiated from yesterday’s signals.
• If it was not for quadruple witching, there would have been a signal in this capsule to raise more cash and increase hedges.

A Serious Warning

Global transport companies are a good barometer of the health of the economy.  FedEx (FDX) is issuing an earnings warning.  The warning is very serious – Q1 (August) earnings at $3.44 vs. consensus of $5.14.  FDX is guiding Q2 earnings at $2.75 vs. consensus of $5.48.

FDX is saying that global volumes have declined significantly both internationally and in the US.  FDX stock is down over 20% as of this writing.

Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 (To see the locked content, please take a 30 day free trial) stocks in the early trade.  Smart money is 🔒 in the early trade.

Gold

The momo crowd is 🔒 gold in the early trade.  Smart money is 🔒 in the early trade.

For longer-term, please see gold and silver ratings.

Oil

The momo crowd is 🔒 oil in the early trade.  Smart money is 🔒 in the early trade.

For longer-term, please see oil ratings.

Bitcoin

Bitcoin has fallen below $20,000.

The ether Merge has become a sell-the-news event.

Markets

Our very, very short-term early stock market indicator is 🔒.  This indicator, with a great track record, is popular among long term investors to stay in tune with the market and among short term traders to independently undertake quick trades.

Interest rates and bonds are range bound.

The dollar is stronger.

Trading futures is not recommended for most investors. The purpose of providing this information is to give an indication of the premarket activity that usually guides the activity when the market opens.

Gold futures are at $1666, silver futures are at $18.99, and oil futures are $85.40.

S&P 500 futures resistance levels are 3950, 4000 and 4200: support levels are 3860, 3770 and 3630.

DJIA futures are down 356 points.

Protection Bands and What To Do Now?

It is important for investors to look ahead and not in the rearview mirror.

Consider continuing to hold existing positions. Based on individual risk preference, consider holding 🔒 in cash or treasury bills or allocated to short-term tactical trades, and short to medium-term hedges of 🔒, and short term hedges of 🔒. This is a good way to protect yourself and participate in the upside at the same time.

You can determine your protection bands by adding cash to hedges.  The high band of the protection is appropriate for those who are older or conservative. The low band of the protection is appropriate for those who are younger or aggressive.  If you do not hedge, the total cash level should be more than stated above but significantly less than cash plus hedges.

It is worth reminding that you cannot take advantage of new upcoming opportunities if you are not holding enough cash.  When adjusting hedge levels, consider adjusting partial stop quantities for stock positions (non ETF); consider using wider stops on remaining quantities and also allowing more room for high beta stocks.  High beta stocks are the ones that move more than the market.

China’s Red Line

Investors need to pay attention to the depreciation of the Chinese currency yuan.  As of this writing, yuan is touching 7.14 against the dollar.  In The Arora Report analysis, 7.15 is likely the red line of People’s Bank of China.

Depending on how China reacts, it can potentially have a significant impact on the US stock market.

Mixed New Data

Please click here for a chart of S&P 500 ETF (SPY) which represents the benchmark stock market index S&P 500 (SPX).

Note the following:

• There is significant new economic data this morning.  The data is mixed.  Here are the details.
  • Retail sales came at 0.3% vs. 0.0% consensus.
  • Retail sales ex-auto came at -0.3% vs. 0.0% consensus.
  • Export prices fell -1.6% vs. 0.0% consensus.
  • Import prices fell -1.0% vs. 0.0% consensus.
  • Initial jobless claims came at 213K vs. 233K consensus.
  • Industrial production came at -0.2% vs. 0.0% consensus.
  • Capacity utilization came at 80.0% vs. 80.3% consensus.
• After the new data, here are the new probabilities of the Fed rate hike.
  • 70% probability of a 75 bps interest rate hike
  • 30% probability of a 100 bps interest rate hike
• The chart shows that the market is right at the lower trend line drawn in cyan.
• The trend line tends to provide support.  Momo gurus are urging their followers to buy as they claim to know that the support will hold.
• The chart shows a red line.  The breach of the level shown by the red line is potentially the point where Wall Street’s algorithms have been programmed to sell stocks.  
• Due to its importance, it is worth repeating from yesterday’s Afternoon Capsule:

• In The Arora Report analysis, there are likely many stops under 3884.  If this level is breached, expect hunt and destroy algorithms to kick in and take out the stops.

• It is a true shame that a legion of investors who follow traditional technical analysis continue to put stops at obvious places where smarter players can take advantage by taking out the stops.

• One of the many innovations of The Arora Report has been to refine the art and the science of placing stops so that they protect you but have the least probability of hitting.

Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 stocks in the early trade.  Smart money is 🔒 in the early trade.

Gold

Gold is breaking below the psychological support of $1700 due to stronger dollar.

The momo crowd is 🔒 gold in the early trade.  Smart money is 🔒 in the early trade.

For longer-term, please see gold and silver ratings.

Oil

The momo crowd is 🔒 in oil in the early trade.  Smart money is 🔒 in the early trade.

For longer-term, please see oil ratings.

Bitcoin

Bitcoin is range bound above $20,000.

Ethereum

Ethereum has successfully completed a very ambitious upgrade known as the Merge.  The Merge allows the network to use native tokens in staking wallets.  The result will be a 99% drop in energy usage.

There are significant hedge fund positions in ethereum on both the long and short sides.  

Markets

Our very, very short-term early stock market indicator is 🔒 due to noise in the data.  This indicator, with a great track record, is popular among long term investors to stay in tune with the market and among short term traders to independently undertake quick trades.

Interest rates are ticking up, and bonds are ticking down.

The dollar is stronger.

Trading futures is not recommended for most investors. The purpose of providing this information is to give an indication of the premarket activity that usually guides the activity when the market opens.

Gold futures are at $1698, silver futures are at $19.53, and oil futures are at $87.14.

S&P 500 futures resistance levels are 4000, 4200 and 4318: support levels are 3950, 3860 and 3770.

DJIA futures are down 45 points.

No Capitulation

Please click here for a chart of S&P 500 ETF (SPY) which represents the benchmark stock market index S&P 500 (SPX).

Note the following:

• Thank you for all of your great questions about capitulation.  Knowing about capitulation is extremely important because a capitulation provides a major buying opportunity.
• The bottom line is that yesterday’s price action was not a capitulation.  Please see the post “ASK ARORA: TIME TO BUY — WAS THE PRICE ACTION THIS AFTERNOON A CAPITULATION?”
• Producer Price Index (PPI) is better than feared.  Here are the details.
  • Headline PPI month-over-month came at -0.1% vs. -0.1% consensus.
  • Core PPI month-over-month came at 0.4% vs. 0.3% consensus.
• Investors need to pay close attention to PPI as prices at the producer level ultimately flow through to the consumers.
• In our analysis at The Arora Report, these PPI numbers should provide some relief to the Fed – PPI data tilts the scale towards 75 bps rate hike and not 100 bps rate hike.  
• The chart shows that the Arora call of a binary move ahead was made two days prior to over 1200 DJIA point drop in the stock market.
• The price action today after the release of PPI is opposite to the price action yesterday on the release of CPI.
  • The momo crowd was buying after the release of CPI and ended up suffering huge losses.
  • Today the momo crowd is selling after the release of PPI.
  • Essentially, the momo crowd bought significantly higher and is selling significantly lower.
  • Smart money was aggressively selling on the release of CPI and came out ahead as the market fell by over 1200 DJIA points.
  • Today, after the release of PPI, smart money is lightly buying.  Our inference is that smart money buying today isn’t real buying but simply buying to cover short positions to book profits.  
• The chart shows that the selloff yesterday was on heavy volume.  In contrast, the chart shows that the recent rally was on low volume.  This is a negative for the stock market.
• The chart shows that the market is now at the lower trend line shown by the cyan line on the chart.  This is temporarily providing support.
• The chart shows that RSI is in no man’s land.  This indicates that the market can go either way, but the RSI pattern has a slightly higher probability of a very very short term bounce.

Momo Crowd And Smart Money In Stocks

The momo crowd is selling in the early trade.  Smart money is lightly buying in the early trade; the buying is likely taking profits on shorts.

Gold

The momo crowd is 🔒 gold in the early trade.  Smart money is 🔒 in the early trade.

For longer-term, please see gold and silver ratings.

Oil

The momo crowd is 🔒 oil in the early trade.  Smart money is 🔒 in the early trade.

For longer-term, please see oil ratings.

Bitcoin

Bitcoin is range bound and holding above the $20,000 psychological support level.

Markets

Our very, very short-term early stock market indicator is 🔒 but can quickly turn 🔒.  This indicator, with a great track record, is popular among long term investors to stay in tune with the market and among short term traders to independently undertake quick trades.

Interest rates are ticking up, and bonds are ticking down.

The dollar is weaker.

Trading futures is not recommended for most investors. The purpose of providing this information is to give an indication of the premarket activity that usually guides the activity when the market opens.

Gold futures are at $1714, silver futures are at $19.56, and oil futures are at $87.17.

S&P 500 futures resistance levels are 3950, 4000 and 4200: support levels are 3860, 3770 and 3630.

DJIA futures are up 54 points.

Hotter Inflation

Please click here for a chart of  S&P 500 ETF (SPY) which represents the benchmark stock market index S&P 500 (SPX).

Note the following:

• Consumer Price Index (CPI) came hotter than the consensus. Here are the details  of the month-over-month numbers:
  • The headline number came at +0.1% vs. – 0.1% consensus.
  • Core CPI came at 0.6% vs. 0.3% consensus.
• The chart shows the release of the CPI data.
  • Note the wide range of the bar.
  • The high of the bar occurred just before the number was released at 8:30 am ET.
  • Momo crowd buying became more and more aggressive as 8:30 neared in hopes of lower inflation.
  • Momo buying was most aggressive in the seconds before the release of the number.
  • The momo crowd buying ran the market well above the high band of the micro support/resistance zone shown on the chart.
  • The super aggressive buying this morning was on top of the aggressive momo buying over the last four days on hope strategy as shown on the chart.
  • As of this writing, the market has fallen below the low band of the micro support/resistance zone.
• We have been emphasizing that hope is never a good strategy.  Today the truth of this statement is on vivid display.
• We have previously shared with you that investors should focus on month-over-month numbers and not year over year.
• Momo gurus have been proven very wrong again.  They now have a new narrative to persuade you to buy stocks – year over year, inflation was 8.3% in August down from 8.5% in July and 9.1% in June.  This is the new song to cheer aggressively buying stocks.
• There is a dramatic change in Fed funds futures.
  • The probability is 80% of a 75 basis point hike in the key interest rate.
  • The probability is 20% of a 100 basis point hike in the key interest rate.
• Smart money sold on the news.
• The Arora Report members are well positioned.  Please pay attention to the changes in the low band of the short-term hedges in the  Protection Bands and What To Do Now? section below.

Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 stocks in the early trade.  Smart money is 🔒 stocks in the early trade.

Gold

Gold is being sold on a stronger dollar as gold is priced in dollars.

The momo crowd is 🔒 gold in the early trade.  Smart money is 🔒 in the early trade.

For longer-term, please see gold and silver ratings.

Oil

The momo crowd is 🔒 in oil in the early trade.  Smart money is 🔒 in the early trade.

For longer-term, please see oil ratings.

Bitcoin

Bitcoin is being sold along with speculative stocks.

Markets

Our very, very short-term early stock market indicator is 🔒.  This indicator, with a great track record, is popular among long term investors to stay in tune with the market and among short term traders to independently undertake quick trades.

Interest rates are ticking up and bonds are ticking down.

The dollar is stronger.

Trading futures is not recommended for most investors. The purpose of providing this information is to give an indication of the premarket activity that usually guides the activity when the market opens.

Gold futures are at $1709, silver futures are at $19.47, and oil futures are $87.54.

S&P 500 futures resistance levels are 4200, 4318, and 4400: support levels are 4000, 3950, and 3860.

DJIA futures are down 581 points.

Lower Dollar

Please click here for a chart of dollar index ETF UUP.

Note the following:

• The chart shows that until last week the dollar was very strong.
• The strength in the dollar had put downward pressure on stocks, gold, oil, and bitcoin.
• The chart shows that the dollar has broken down below the trend line.
• The break down in the dollar was in part responsible for the stock market rally late last week.
• The chart shows that this morning the dollar has fallen further on news from Ukraine.
  • The Ukrainian army is making surprisingly fast gains in a counter-offensive against the Russian army in the southeast of Kharkiv.
  • The new narrative is that it is possible for Ukraine to win.
  • If Ukraine wins, there will be less need for the safety of the dollar.
  • The celebration seems premature because Russia is not likely to accept a defeat.  It is not known at this point how Russia will react.
• The RSI on the chart shows that there is more room for the dollar to fall.
• There is aggressive buying in stocks due to the falling dollar.
• As is their pattern, the momo crowd is buying ahead of the key CPI data tomorrow.  The reason is that the momo crowd uses the hope strategy without regard to risk.  In contrast, smart money is cautious before key events.  For details of CPI, please read Friday’s Morning Capsule.
• As we have shared with you before, CPI data has a high probability of producing a binary event in the stock market with a potential large move on either side.
• Quadrupel witching is ahead this week.
  • So far, it appears that option expiration is putting upside pressure on the market.
  • There is more important economic data ahead this week.
    • PPI will be released on September 14.
    • Retail Sales will be released on September 15.
• When the momo crowd gets in the buying mode, they buy anything that has news even if the news is negative.
  • Biden may widen the restrictions on exports of semiconductors from China.  This may especially negatively impact AMD and NVDA.  The momo crowd is buying semiconductors on the negative news.
  • Railroad works are threatening a strike. The momo crowd is buying railroad stocks such as CSX and UNP on the negative news.

Momo Crowd And Smart Money In Stocks

The momo crowd is buying stocks in the early trade.  Smart money is inactive in the early trade.

Gold

Gold moves higher when dollar goes down because gold is priced in dollars.

The momo crowd is 🔒 gold in the early trade.  Smart money is 🔒 in the early trade.

For longer-term, please see gold and silver ratings.

Oil

Oil is going higher on lower dollar as oil is priced in dollars.

The momo crowd is 🔒 oil in the early trade.  Smart money is 🔒 in the early trade.

For longer-term, please see oil ratings.

Bitcoin

Bitcoin is going higher on lower dollar.

Markets

Our very, very short-term early stock market indicator is positive but can quickly turn 🔒 if smart money starts 🔒 or if there is more news from Ukraine.  This indicator, with a great track record, is popular among long term investors to stay in tune with the market and among short term traders to independently undertake quick trades.

Interest rates are ticking down, and bonds are ticking up.

The dollar is weaker.

Trading futures is not recommended for most investors. The purpose of providing this information is to give an indication of the premarket activity that usually guides the activity when the market opens.

Gold futures are at $1743, silver futures are at $19.70, and oil futures are at $88.48.

S&P 500 futures resistance levels are 4200, 4318, and 4400: support levels are 4000, 3950, and 3860.

DJIA futures are up 78 points.